- The MoneyFitt Morning
- ☀️☕️ Shot in the ARM
☀️☕️ Shot in the ARM
📊 Also: Nearly S&P 5K; 3 of Mag7 new highs, Disney beats and adds Swifties; SMIC-down 🎓 IPOs
🍊🍊We will be taking a short break for the start of the Lunar New Year and will be back on Tuesday 13th February.🧧
Shot in the ARM
📊 In the Markets
Nearly S&P 5K; 3 of Mag7 new highs, Disney beats and adds Swifties; SMIC-down
📖 MoneyFitt Explains
💸 Personal Finance Corner
Shot in the ARM
Nasdaq-listed UK-based chip designer Arm shot up nearly 40% in after-market trading, adding over $30bn to its market value and blasting it well into new high territory at over double its September IPO 🎓 price. Arm’s 3rd quarter revenues and earnings beat the best guesses of Wall Street’s Finest by 8% and 16%. It also raised March full year guidance by 4% and 16%. EPS guidance for the 4th quarter alone is now more than 40% above consensus estimates.
The SoftBank-owned company generates revenue from licensing its designs plus royalty fees on sales (usually a small percentage of the final chip price) with its energy-efficient CPU tech used in nearly every smartphone. Increased device sales drove royalties in the latest quarter, but this is still a saturated and slowing or even shrinking market. (About two-thirds of its revenues came from phone chips when SoftBank acquired it to less than half, reflecting this dynamic and efforts to diversify.)
But CEO Rene Haas attributed the strong growth in the latest results to expanding market share in cloud and automotive (self-driving) sectors, as well as to licensing growth on the back of the explosion in high value AI investments. Arm has been focusing on the much more lucrative business of licensing more complete “compute subsystem” designs that save its chipmaker customers time and effort with increasingly complex chips needing ever more advanced manufacturing.
..... ▷ The September IPO at $51 valued Arm at $54.5bn and was comfortably the largest listing of 2023 as well as the biggest US IPO since Rivian’s in 2021. (RIVN is currently 80% down from its $78 IPO price.)
TSMC and major clients like Apple, Nvidia, Alphabet, AMD, Intel and Samsung joined the IPO as cornerstone industry investors.
Fellow high profile late-2023 tech IPO Instacart is now down 19% from its $30 listing price, with a market value of $7bn, a far cry from its March 2021 peak pandemic, peak private round valuation of $39bn.
..... ▷ The Nasdaq listing came seven years after SoftBank took it private off the London Stock Exchange for $32bn, a decent 28% premium to the price at the time.
It raised $4.87bn for SoftBank (and hackles in London for not relisting there.)
..... ▷ Based on Wednesday’s after-market price of $107 (though the actual price on Thursday could be vastly different), the market capitalisation (share price X number of shares) of Arm is $109bn.
This puts the compound annual return for the 90.6% that SoftBank still owns at about 19% since the London delisting (though 25% of the shares went to its Vision Fund but then got bought back at $64bn.)
..... ▷ It’s also 170% greater than the $40bn that Nvidia offered for the whole firm in September 2020 that was agreed upon by SoftBank but ultimately blocked by antitrust regulators.
On the other hand, that bid included at least $21.5 billion in Nvidia common stock… which would now be worth $125bn.
On learning that Nvidia’s $40bn cash and share bid would now be worth over $130bn - Image credit: Harry Potter and the Sorcerer’s Stone (2001) / Warner Bros. via Tenor
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📊 In the Markets
The S&P 500 closed Wednesday near the 5,000 psychological round number milestone, driven by a tech-led rally amid a stronger-than-expected fourth-quarter earnings season.
Meta Platforms surged 3%, while Nvidia and Microsoft climbed about 2% each to new highs.
Steamboat Willie entered the public domain in the United States on January 1, 2024 - Image credit: Walt Disney via Tenor
Disney's shares surged over 6% after-hours after beating earnings estimates despite stagnant revenues (thanks to cost-cutting and lower streaming losses), hiking its dividend by 50% and raising guidance. CEO Bob Iger said “we have turned the corner and entered a new era for our company.”
In a flurry of announcements, Disney also announced the launch of its flagship ESPN sports streaming service in August or fall 2025 (ESPN+ only carries part of ESPN) and a $1.5 billion equity investment in Epic Games, the Fortnite developer, marking its largest foray yet into gaming. It also announced a sequel to “Moana” due out this November and…
More exciting to everyone (probably including activist investor Nelson Peltz, who’s still gunning for change and a board seat), Disney revealed plans to debut “Taylor Swift | The Eras Tour (Taylor’s Version)” on its streaming service Disney+ from March 15th (37 long days away) AND will include four additional acoustic songs and the hit single “Cardigan.”
… twenty times in a row on Disney+ - Image credit: Tenor
The three hour long “The Eras Tour” film has so far grossed over $260mn globally, making it the top selling concert film in box office history.
Asia-Pacific stocks were generally firmer on Wednesday as investors evaluated corporate earnings and China’s market support efforts, including measures that sent Tuesday markets flying. (MFM: “Uninvestable” China?)
But Hong Kong’s Hang Seng closed mildly weaker after a bright start though China’s CSI 300 increased 0.42%.
Semiconductor maker SMIC, after reporting a 54.7% Q4 profit drop, warned of the potential impact of both global macroeconomic challenges and geopolitical tensions in 2024, leading to an 8% share drop in HK trading.
Japan’s Topix and South Korea’s Kospi also saw gains of 0.33% and 0.95%, respectively.
📖 MoneyFitt Explains
An IPO is when a privately owned company sells new shares to the public and institutional investors (including mutual or hedge funds, pensions, banks, insurance companies, trusts and sovereign wealth funds. Main ones in “the book” are called "cornerstone" or "anchor" investors.)
Shares need to fulfil certain disclosure and other requirements to get "listed" on a stock exchange where they can be traded. To help the company through this process, an IPO is "underwritten" by investment banks, who also find buyers for the shares and help set the price.
The main reason for having an IPO is for the company to raise money by selling shares in itself so it can grow its business. Almost as important, it's a way for existing shareholders and management to sell their shares and receive money themselves. A third reason is to have something tradeable to incentivise staff with.
IPO prices are usually set high enough to raise enough money but low enough for the shares to go up "in the aftermarket" on buying by investors who didn't get as many as they originally wanted. This is reflected in the subscription multiple (the number of shares desired divided by the number on offer.)
Everyone likes IPOs shooting up, especially management, the banks and IPO investors, (though in a way it means it was underpriced.) There's no guarantee that it will, but banks do sometimes legally "support" the share price in the market afterwards.
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